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Capital Investment Questions

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53 views2 pages

Capital Investment Questions

Uploaded by

justin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Payback Period Questions

1. An investment of $1,200 generates cash flows of $300 per year. What is the Payback
Period for this investment?
Year Cash Flow Cumulative
Cash Flow
0 -1,200
1 300 300
2 300 600
3 300 900
4 300 1200
5 300 1500
6 300 1800
7 300 2100

2. If an investment of $800 generates cash flows of $200 in Year 1, $300 in Year 2, and
$400 in Year 3, how long will it take to recover the initial investment?
Year Cash Flow Cumulative
Cash Flow
0 -800
1 200 200
2 300 500
3 400 900

300/400 = 0.75 years

3. A project requires an initial investment of $2,000 and is expected to generate cash


flows of $500 each year. Calculate the Payback Period.

Year Cash Flow Cumulative


Cash Flow
0 -800
1 200 200
2 300 500
3 400 900

4. If Project A has an initial investment of $1,500 and generates cash flows of $400 in
Year 1, $600 in Year 2, and $700 in Year 3, what is the Payback Period?
Net Present Value (NPV) Questions
5. Calculate the Net Present Value (NPV) of an investment of $10,000 that generates
cash flows of $3,000 per year for 5 years, using a discount rate of 8%.
Year Cash Flow Discount = 0.08
0 - 10,000 -10,000
1 3,000 2,778 3000/1.08
2 3,000 2,572 2778/1.08
3 3,000 2,381 2572/1.08
4 3,000 2,205 2,381/1.08
5 3,000 2,042 2,205/1.08
NPV 1,978 (2778
+2572+2381+2205+2042)
-10,000 = 11,978 -10,000

6. An investment of $5,000 generates cash flows of $1,500 per year for 4 years. If the
discount rate is 10%, what is the NPV?
7. If a project requires an initial investment of $15,000 and is expected to generate cash
flows of $4,000 per year for 6 years, with a discount rate of 12%, what is the NPV?
8. Calculate the NPV of an investment of $20,000 that generates cash flows of $6,000
per year for 5 years, using a discount rate of 10%.

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